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In re Rumsey Land Co., LLC

United States District Court, D. Colorado

October 26, 2018

In RE RUMSEY LAND COMPANY, LLC, Debtor.
v.
RESOURCE LAND HOLDING, LLC, SORIN NATURAL RESOURCE PARTNERS, LLC, and PUEBLO BANK AND TRUST COMPANY, LLC, Defendants. RUMSEY LAND COMPANY, LLC, Plaintiff,

          ORDER GRANTING DEFENDANT RLH'S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT PBT'S MOTION FOR JOINDER

          CHRISTINE M. ARGUELLO, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Defendants Resource Land Holding, LLC, and Sorin Natural Resource Partners, LLC's (collectively, “Defendant RLH”) Motion for Summary Judgment. (Doc. # 73.) The Court also addresses Defendant Pueblo Bank and Trust Company, LLC's (“Defendant PBT”) Motion for Joinder in Support of Defendant RLH's Motion for Summary Judgment. (Doc. # 79.) For the reasons that follow, the Court grants Defendant RLH's Motion for Summary Judgment and grants Defendant PBT's Motion for Joinder.

         I. BACKGROUND

         This litigation has a tortuous history. United States Magistrate Judge Mark L. Carman detailed its factual background in his March 5, 2018 Recommendation on Motions to Dismiss (Doc. # 75), which the Court affirmed and adopted on March 30, 2018 (Doc. # 82). United States Magistrate Judge S. Kato Crews has since identified the parties' stipulations of fact in the Final Pretrial Order. (Doc. # 94 at 8-11.) Magistrate Judge Carman's and Magistrate Judge Crews's recitals of the facts are incorporated herein. The background of this dispute will be repeated only to the extent necessary to address Defendant RLH's Motion for Summary Judgment and Defendant PBT's Motion for Joinder.

         A. THE BANKRUPTCY ACTION

         Plaintiff-Debtor the Rumsey Land Company, LLC (“Rumsey”) is a privately-held, Colorado-based limited liability company that owns real property in Elizabeth, Nederland, and Evans, Colorado. (Doc. # 63-17 at 3.) At some point prior to 2009, Rumsey acquired ownership of the Rumsey Farm and environs (the “Property”). (Id.) The Property included 380 acres of land, three homes, roads and other infrastructure, mineable gravel reserves, and 38 shares of stock in the Godfrey Ditch Company, which carried with them rights to harvest 800 acre feet of water annually. (Id.) At the pertinent times described below, the Property was subject to two secured claims: (1) a first deed of trust securing a loan made by Defendant PBT, with an outstanding amount due of approximately $5, 640, 000, and (2) a second deed of trust securing a loan held by non-party RLF II, which is not at issue. (Doc. # 63-31 at 2.)

         In 2009, Rumsey considered selling the Property and presented it to Defendant RLH. (Doc. # 63-17 at 4.) Rumsey alleges that it informed Defendant PBT about its negotiations with Defendant RLH and discerned that Defendant PBT was not willing to cooperate on the sale of the Property to Defendant RLH. (Id.) Defendant PBT accelerated collections on its loan to Rumsey in late 2009.[1] (Id.)

         In response to Defendant PBT's acceleration of its loan payment collections, on January 15, 2010, Rumsey filed a Voluntary Petition pursuant to Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Colorado, case number 10-10691-HRT. (Doc. # 66-1.) Defendant PBT filed a proof of claim for approximately $5, 640, 000 with the Bankruptcy Court. (Doc. # 31-1.)

         On April 15, 2010, Defendant RLH agreed to purchase the Property for a cash price of $7, 484, 397.75, plus a royalty payment from the net proceeds received on any subsequent sale of certain sand, gravel, and water rights. (Doc. # 63-31 at 2.) On April 29, 2010, Rumsey filed with the Bankruptcy Court its First Motion to Approve Sale. (Doc. # 66-22.) Three creditors[2] objected to Rumsey's First Motion to Approve Sale, asserting that the Property had not been marketed properly. (Doc. ## 66-29, 66-30, 66-34.)

         The Bankruptcy Court conducted an evidentiary hearing on Rumsey's First Motion to Approve Sale, and on September 3, 2010, it denied the motion. (Doc. # 66-57.) The Bankruptcy Court ordered Rumsey to work with the objecting creditors to retain a broker and to establish bidding, auction, and sale procedures. (Doc. # 63-31 at 2.) With the Bankruptcy Court's approval (Doc. # 66-70), Rumsey employed General Capital Partners, LLC (“GCP”) to handle all matters related to the marketing and sale of the Property, see (Doc. # 66-62).

         Meanwhile, after the Bankruptcy Court denied Rumsey's First Motion to Approve Sale, Defendant PBT entered into an agreement with Defendant RLH to sell Defendant PBT's loan agreement with Rumsey to Defendant RLH for $4, 600, 000 (the “Loan Purchase Agreement”) on December 1, 2010.[3] (Doc. # 73-2 at 31-42, 44.)

         On December 27, 2010, Rumsey filed with the Bankruptcy Court its Second Motion to Approve Sale Pursuant to an Auction. See (Doc. # 66-88.) The Bankruptcy Court held an evidentiary hearing on Rumsey's proposed procedures for the auction, see (id.), and approved the procedures on March 2, 2011 (Doc. # 66-86).

         On March 15, 2011, shortly after the Bankruptcy Court approved the procedures for the auction, Defendant RLH filed a lawsuit against Defendant PBT to enforce the Loan Purchase Agreement in the District Court for the City and County of Pueblo, Colorado, case number 11CV172.[4] (Doc. # 63-1 at 34-42.) Defendants RLH and PBT stipulate that on February 1, 2011, Defendant PBT had refused to close on the Loan Purchase Agreement, “contending it had terminated, ” and had tendered the deposit money back to RLH. (Doc. # 63-17 at 10.) On April 5, 2011, Defendant PBT answered Defendant RLH's Complaint, and filed a counterclaim seeking a declaration that it had not breached the Loan Purchase Agreement and that the Loan Purchase Agreement terminated when the deal failed to close on January 31, 2011. (Doc. # 63-32.)

         Meanwhile, the Bankruptcy Court timely received the following bids for the auction of the Property:

• A credit bid of $5, 000, 000 from Defendant PBT, which desired to be considered a stalking horse bidder; • A proposed stalking horse bid of $4, 000, 000 from Sorin Natural Resource Partners, LLC (“Sorin”), submitted on letterhead of Defendant RLH, its registered agent;
• A bid of $8, 600, 000 for certain lots from Confluence Resource Holdings (“Confluence”); and
• Two bids from Westside Investment Partners, Inc. (“Westside”) for the remaining lots that Confluence did not bid on.

(Doc. # 63-31 at 3.)

         The auction of the Property was held on May 11, 2011. (Id.) At the conclusion of the auction, Confluence was declared the highest and best bidder for the lots included in its offer, and Westside was declared the highest and best bidder for the remaining lots. (Doc. # 66-100.) Because Confluence's and Westside's offers were contingent on a sixty-day due diligence period, Defendant PBT was selected as the back-up bidder on the Property. (Id.) Both Defendants RLH and PBT received notice of the proposed sale to Confluence and Westside. (Doc. # 94 at 11.) On June 16, 2011, the Bankruptcy Court held a hearing on the proposed sale order of the Property, (Doc. # 63-31 at 4), and on the following day, it entered the sale order (Doc. # 66-113), triggering Confluence's and Westside's sixty-day due diligence period. On August 15, 2011, Confluence notified Rumsey that “based upon its inspections, ” Confluence “elect[ed] not to proceed with closing” on the Property. (Doc. # 55-115 at 7.) Rumsey then accepted Defendant PBT's back-up bid for the Property.

         At roughly the same time, on September 13, 2011, Defendants RLH and PBT agreed to settle the suit between them in Pueblo District Court, with Defendant PBT selling the Property to Defendant RLH for $4, 750, 000. (Doc. # 73 at 7.) Approximately one week later, the Pueblo District Court dismissed Defendant RLH's case against Defendant PBT with prejudice by stipulation of the parties. (Doc. # 63-31 at 4.) Neither Defendant RLH nor Defendant PBT notified Rumsey or the Bankruptcy Court of the lawsuit's resolution. (Id.)

         On October 5, 2011, the Bankruptcy Court entered an order approving the sale and transferring title to the Property to Defendant PBT. (Doc. # 66-119.)

         Shortly thereafter, Defendant PBT conveyed title to the Property to Sorin, whose registered agent is Defendant RLH, for $4, 750, 000. (Doc. # 73-2 at 81-87.) Defendant RLH does not distinguish between itself and Sorin in its Motion for Summary Judgment. See (Doc. # 73 at 7 (“PBT sold the Property to RLH in October 2011”)).

         Finally, on October 20, 2011, Rumsey's bankruptcy case was closed. (Doc. # 63-31 at 5.)

         B. RUMSEY'S ADVERSARY PROCEEDING IN THE BANKRUPTCY COURT

         On June 4, 2015, Rumsey filed with the Bankruptcy Court a Motion to Set Aside Order Dismissing Bankruptcy Case and to Reinstate Case. (Id.) Rumsey alleges that the following led to the filing of the adversary proceeding:

In May of 2014, one of the interest holders of Rumsey was alerted that PBT had begun aggressively seeking to collect upon the deficiency.[5] On June 10, 2014, said interest holder discovered in a COCourts.com search, there was a civil action initiated by RLH against PBT. However, the interest holder had no access to the pleadings in the civil action. Nor was there reason to suspect nefarious conduct. It was not until [early in 2015] that the interest holder (who is also a guarantor of the PBT debt) along with certain of the other guarantors retained counsel due to the collection efforts of PBT. That counsel pulled a copy of the complaint and at that moment[, ] the inside dealings of PBT and RLH were discovered. This discovery prompted an investigation, and ultimately the decision to seek to set aside the Dismissal Order [in its bankruptcy case.]

(Doc. # 63-17 at 20-21.)

         On June 10, 2015, Rumsey and certain of Rumsey's guarantors, including William Romanowski, filed an adversary proceeding against Defendants RLH, Sorin, and PBT in the Bankruptcy Court. (Id.) The Bankruptcy Court reopened Rumsey's bankruptcy case in order to allow the adversary proceeding to go forward. (Doc. # 63-31 at 5.) The action now before this Court is that adversary proceeding. See (Doc. # 75 at 2.)

         The operative pleading is Rumsey's Amended Complaint, filed on October 14, 2015. (Doc. # 63-17.) Rumsey alleges that Defendants “PBT and RLH entered into a secret collusive agreement which had the effect of corrupting the bidding and sale procedures approved by the Bankruptcy Court.” (Id. at 1.) It claims:

PBT concealed from the parties in interest and the [Bankruptcy] Court that they had entered into a secret [deal] to sell the first deed of trust [on the Property] to RLH for a price of $4.9 million. This “secret deal” allowed RLH to acquire [the Property] for a savings of $2.5 million based on the price that they original bid. It also deprived the creditors of Rumsey of not less than $2.5 million. PBT's attempt to secretly chill the auction process . . . victimizes the [Bankruptcy] court by compromising its integrity.

(Id. at 2.) Rumsey requests that “the sale be reversed and that the [Property] be returned to the bankruptcy estate.” (Id.) It asserts six causes of action:

I. Fraud on the Court, against all Defendants;
II. Violation of 11 U.S.C. § 363(n) - Prohibition of Collusive Bidding Activities, against all Defendants;
III. Breach of Contract, against Defendant PBT only;
IV. Negligence, against all Defendants;[6]
V. Fraudulent Concealment, against all Defendants; and
VI. Breach of Duty of Good Faith and Fair Dealing, against Defendant PBT only.

(Id. at 22-32.)

         Defendants filed Motions to Dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), as incorporated in Federal Rule of Bankruptcy Procedure 7012, in the Bankruptcy Court. See (Doc. # 63-31 at 1.) On June 2, 2017, United ...


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